(b) Statutory guidelines on contract interpretation

Lawyers like to provide certainty on how a contract must be (and thus will be) interpreted. For them, several legislatures have provided guidelines for interpreting contracts (or legal acts). Despite the broad consensus that such guidelines are not determinative for a case at hand and provide no more than some ‘hints’ for courts to consider, risk-avoidant lawyers have anticipated that these guidelines could nevertheless be detrimental and should therefore be excluded explicitly.

Contra Proferentem. The Unidroit Principles provide guidelines for contract interpretation. This is consistent with the civil codes of France, Italy, Spain and Belgium in particular, although most countries apply such principles. The main principles of interpretation have been quoted in the previous section; another well-known one is:

Article 4.6 (Contra proferentem rule)

If contract terms supplied by one party are unclear, an interpretation against that party is preferred.

The rule provides a preference in case any negotiations were mainly determined by an economically strong party (vis-à-vis a weak counterparty). Despite this context-specific application, the principle has prompted many drafters to include a provision expressing that “the parties reviewed and negotiated the entire contract in all its respects” (and accordingly stating or implying that “no provision should be interpreted against the party who drafted it”). Such an approach fails to address the real issue:

  • Firstly, the interpretation rule would only apply to stipulations where there is a (reasonable) doubt about the actual meaning of a phrase. If there is no such doubt, the stipulation would be enforced. Whether such doubt could exist may be measured also against another rule: for instance, the fact that the parties are business people and advised by professionals keen to understand each oddly phrased provision.
  • Secondly, the principle effectively says that where two interpretations compete, the party who created the ambiguity should not have the benefit. The phrase is preferred emphasises that the drafter may explain why a certain meaning should prevail (and thereby ‘win’ the interpretation discussion).

Similar arguments can be made about a dominant party who drafted a contract provision: such party would insist on the inclusion of a particular provision, notably as regards disclaimers or limitation of liabilities. In these cases, there may also be a hint of abuse of power, which is not supported by the law (see also Unidroit Principles Article 3.2.7 (gross disparity)).

Other rules on interpretation. A few provisions of the Unidroit Principles clarify that negotiation of a clause improves its enforceability. This is understandable because the more comprehensive the discussions about the ins and outs of a clause have been, the more reluctant a court must be to attribute a meaning that is not immediately obvious. Another important rule for interpretation is that a contract provision was presumably always given a meaning or intended effect. If a provision is ambiguous or contains errors, mere reliance on such ambiguity or error without further merit should not be protected if another interpretation provides a meaning for it.

Article 4.4 (Reference to contract or statement as a whole)

Terms and expressions shall be interpreted in the light of the whole contract or statement in which they appear.

Article 4.5 (All terms to be given effect)

Contract terms shall be interpreted so as to give effect to all the terms rather than to deprive some of them of effect.

Overall, the importance of one interpretation rule or another is still a matter of judgement and is not inevitably part of the reasoning given by a court. Where the principles invoke different standards, their actual significance may well differ from country to country or even from judge to judge. Again, this probably also appeals to cultural legal differences.

Drafting tip: introduce mutuality.

The interpretation rules suggest that a very one-sided contract may be highly susceptible to being interpreted against the drafter. A technique to diminish this risk is to improve the sense of mutuality in the contract provisions. Study the two examples below in the Model Contracts handbook:

  • Confidentiality provision: despite a clear one-party-geared interest in continuing confidentiality, this provision is usually drafted to apply mutually.
  • Force Majeure clauses: although the party that can be affected by an event of force majeure is foreseeably only one of the two, the text of the provision often suggests fairness for both.